Investment Advisors, JL Warren Capital

Junheng Li

Investment Advisors

JL Warren Capital

JL Warren Capital LLC is a leading independent equity research firm focused on Chinese companies and listed multinationals in China. We employ a bottom-up research approach that takes great care to avoid the acquisition of material non-public information. Through investigative due diligence including channel surveys and interviews, our research helps clients to pinpoint the dislocations in the market.

Equity Bottom-Up

Over the weekend, <a href="https://www.smartkarma.com/entities/666" target="_blank" data-smartkarma-citation="entities:666:1">Apple Inc (AAPL US)</a> iPhone prices continued to bleed after large cuts started last week as distributors rush to destock.  This week you can get a brand-new iPhone XR 128G for 5,300 RMB (US ~$790) on multiple Chinese e-commerce platforms, ~18% discount vs. the 6,499 RMB (US ~$970) official retail price.  Distributors sell inventory phones with invoices verifying authenticity of manufacturers.  Duration of the ongoing promotions reflects the depth of channel inventories.  We believe that discounts of this magnitude at such an early stage – only 3 months after new product launches – practically penalize early adopters and it is detrimental to AAPL brand image long term.  When future products are released, consumers will learn to be patient and wait for promotions, as opposed to rush to buy as they used to.

Over the weekend, Apple Inc (AAPL US) iPhone prices continued to bleed after large cuts started last week as distributors rush to destock.  This week you can get a brand-new iPhone XR 128G for 5,300 RMB (US ~$790) on multiple Chinese e-commerce platforms, ~18% discount vs. the 6,499 RMB (US ~$970) official retail price.  Distributors sell inventory phones with invoices verifying authenticity of manufacturers.  Duration of the ongoing promotions reflects the depth of channel inventories.  We believe that discounts of this magnitude at such an early stage – only 3 months after new product launches – practically penalize early adopters and it is detrimental to AAPL brand image long term.  When future products are released, consumers will learn to be patient and wait for promotions, as opposed to rush to buy as they used to.

AAPL’s Detrimental IPhone Discounts; China Wholesaler Interview

Overseas Chinese Equities, Aequitas Research

Ming Lu

Overseas Chinese Equities

<ul class="">
<li>Tim Cook passed the buck to the weak sales in China. However, we believe China’s retailing is running well based on our visits to shopping malls with Apple stores.</li>
<li>Luxury goods sold better in China than all other major markets in the world in 2018.</li>
<li>We believe that the price reduction in Mainland China is just taking market share from Apple Stores in Hong Kong, but not from competitors.</li>
<li>We also believe that the app review process is the fatal shortcoming for AAPL.</li>
</ul>


Tim Cook passed the buck to the weak sales in China. However, we believe China’s retailing is running well based on our visits to shopping malls with Apple stores.
Luxury goods sold better in China than all other major markets in the world in 2018.
We believe that the price reduction in Mainland China is just taking market share from Apple Stores in Hong Kong, but not from competitors.
We also believe that the app review process is the fatal shortcoming for AAPL.


Apple (AAPL): Reduces Prices in Mainland China - Right Action, But Not Enough

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

AAC Technologies Holdings / Equity Bottom-Up

The recent trade talk meeting between the US and Chinese government went into an extended unplanned third day which could be seen as a positive development - a sign that both sides are serious on getting a deal done. President Trump's  recent tweet citing ""Talks with China are going very well!" has been responded positively in Asian equities market. Is it all just that or are there more in the company?

The recent trade talk meeting between the US and Chinese government went into an extended unplanned third day which could be seen as a positive development - a sign that both sides are serious on getting a deal done. President Trump's  recent tweet citing ""Talks with China are going very well!" has been responded positively in Asian equities market. Is it all just that or are there more in the company?

AAC Tech (2018): Damage Is Done While Business Remain Intact - BUY

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

Quantitative Analysis

MARKET COMPOSITE
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/380/original/2019-01-13_13-31-55.png?1547353946" class="editor-image img-responsive" data-smartkarma-image-id="75380"></figure>
<div class="content-caption">Source: Japan Analytics</div>
NEW YEAR RALLY - From the December 25th's lows of 8% by number and 11% by value, the percentages of Japanese stocks above the weighted sum of moving averages have recovered to 14% by number and 20% by value - just on the 'buying zone' line. As we <a href="https://www.smartkarma.com/insights/japan-2018-market-review-bear-market-rally-ahead" target="_blank" data-smartkarma-citation="insights:26917">expected</a>, the Total Market Value has rallied 8.7% and looks to have some further to run, especially if the Yen reverses some of its recent strength. The Bank of Japan provided a 'helping hand' on both 4th and 10th January, the only days this year so far on which the market declined. 
<hr>
SECTORS
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/383/original/2019-01-13_15-22-47.png?1547360595" class="editor-image img-responsive" data-smartkarma-image-id="75383"></figure>
<div style="text-align: left;" class="content-caption">LEGEND: The 'sparklines' show the three-year trend in the weighted percentage above moving average relative to the Market Composite and the 'STDev' column is a measure of the variability of that relative measure. The table also provides averages for the breaks above and breaks below and the positive and negative crossovers.</div>
SECTOR BREAKDOWN - The top six sectors measured by the percentage above the weighted average of 5-240 Days remain, predictably, domestic and defensive - REITs, Information Technology, Media and Utilities continue from our previous review with Healthcare and Transportation replacing Food, Beverages and Tobacco and Internet Content &amp; Services. Equally predictable is the bottom half-dozen. Banks, Autos, Metals, Electrical Equipment, and Chemicals remain from 23rd December Moving Average Outliers <a href="https://www.smartkarma.com/insights/japan-moving-average-outliers-year-end-blues" target="_blank" data-smartkarma-citation="insights:26895">Insight</a>, with Building Materials replacing Non-Bank Finance. Over the last trading five days, however, there has been a noticeable reversal with Autos, Electrical Equipment, and Machinery all over '55' while Other Consumer Products, Restaurants, Telecommunications and Food, Beverages &amp; Tobacco are all below '40'.
<hr>
COMPANIES
COMPANY MOVING AVERAGE OUTLIERS - As with the market and sectors, our moving average outlier indicator uses a weighted sum of the share price relative to its 5-day, 20-day, 60-day, 120 day and 240-day moving averages. Extreme values are weighted sums greater than 100% and less than -100%. We would caution that this indicator is best used for timing shorter-term reversals and, in many cases, higher highs and lower lows will be seen. 
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/382/original/2019-01-13_15-19-43.png?1547360415" class="editor-image img-responsive" data-smartkarma-image-id="75382"></figure>
<div class="content-caption">Source: Japan Analytics</div>
THE +/-100% CLUB - The number of extreme negative outliers reached a peak for 1,352 on December 25th and has since returned to 'normal' levels. We suggested in the previous Insight in this series that such an extreme number of extremes was a signal of a short-term bottom, which, so far, has proved to be correct.
<div class="content-highlight">
In the DETAIL section below, we highlight the current top and bottom twenty-five larger capitalisation outliers as well as those companies that have seen the most significant positive and negative changes in their outlier percentage in the last two weeks and provide short comments on companies of particular note. 
</div>

MARKET COMPOSITE

Source: Japan Analytics
NEW YEAR RALLY - From the December 25th's lows of 8% by number and 11% by value, the percentages of Japanese stocks above the weighted sum of moving averages have recovered to 14% by number and 20% by value - just on the 'buying zone' line. As we expected, the Total Market Value has rallied 8.7% and looks to have some further to run, especially if the Yen reverses some of its recent strength. The Bank of Japan provided a 'helping hand' on both 4th and 10th January, the only days this year so far on which the market declined. 

SECTORS

LEGEND: The 'sparklines' show the three-year trend in the weighted percentage above moving average relative to the Market Composite and the 'STDev' column is a measure of the variability of that relative measure. The table also provides averages for the breaks above and breaks below and the positive and negative crossovers.
SECTOR BREAKDOWN - The top six sectors measured by the percentage above the weighted average of 5-240 Days remain, predictably, domestic and defensive - REITs, Information Technology, Media and Utilities continue from our previous review with Healthcare and Transportation replacing Food, Beverages and Tobacco and Internet Content &amp; Services. Equally predictable is the bottom half-dozen. Banks, Autos, Metals, Electrical Equipment, and Chemicals remain from 23rd December Moving Average Outliers Insight, with Building Materials replacing Non-Bank Finance. Over the last trading five days, however, there has been a noticeable reversal with Autos, Electrical Equipment, and Machinery all over '55' while Other Consumer Products, Restaurants, Telecommunications and Food, Beverages &amp; Tobacco are all below '40'.

COMPANIES
COMPANY MOVING AVERAGE OUTLIERS - As with the market and sectors, our moving average outlier indicator uses a weighted sum of the share price relative to its 5-day, 20-day, 60-day, 120 day and 240-day moving averages. Extreme values are weighted sums greater than 100% and less than -100%. We would caution that this indicator is best used for timing shorter-term reversals and, in many cases, higher highs and lower lows will be seen. 

Source: Japan Analytics
THE +/-100% CLUB - The number of extreme negative outliers reached a peak for 1,352 on December 25th and has since returned to 'normal' levels. We suggested in the previous Insight in this series that such an extreme number of extremes was a signal of a short-term bottom, which, so far, has proved to be correct.

In the DETAIL section below, we highlight the current top and bottom twenty-five larger capitalisation outliers as well as those companies that have seen the most significant positive and negative changes in their outlier percentage in the last two weeks and provide short comments on companies of particular note. 


Japan: Moving Average Outliers - New Year Rally

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

In November 2017, <a href="https://www.smartkarma.com/entities/637" target="_blank" data-smartkarma-citation="entities:637:1">Toshiba Corp (6502 JP)</a> bowed to the inevitable and issued shares in order to shore up shareholder equity ahead of the 31 March 2018 deadline where if the company had not announced a positive shareholder equity number, it would have been delisted according to the Enforcement Rules of the Tokyo Stock Exchange. So it issued ¥600 billion of equity in an accelerated privately-negotiated placement to hedge funds. There was some jawboning later from domestic institutions who had not gotten the show on the deal, but they would do well to remember that when Toshiba was in dire straits earlier that year, and continued listing was not guaranteed because of accounting issues which were later overcome (before the equity issuance), it was the hedge funds who bought dozens of percent of the company - not domestic financial institutions. In any case, the equity was predictably needed, but as a way of making it clear that it would not be forever, the release accompanying the financing said the company would accelerate returns to shareholders once the sale of Toshiba Memory Corporation was complete. That return of capital to shareholders was <a href="https://www.toshiba.co.jp/about/ir/en/news/20180613_1.pdf" target="_blank">announced</a> in June 2018 after the closing of the TMC transaction had been confirmed. Toshiba would buy back ¥700 billion of shares. At the time, that was up to 40% of shares outstanding, but the shares rose as the shares of companies with large buyback plans do, and it took until November to dot the "i"s and cross the "t"s on making sure that the cash in the bank account was deemed distributable capital surplus. On November 8th, a year after announcing the sale of equity, Toshiba announced the start of a Very Large Buyback. A few days later the company announced a large ToSTNeT-3 buyback, offering to buy back all  ¥700 billion of shares the following morning at that day's close. A week later the company had bought back ¥243 billion or more than 35% of the total buyback then announced further purchases would be made in the market. That's when the fun began. <hr>For previous recent treatment on the Toshiba buyback, see the following:    <a href="https://www.smartkarma.com/insights/toshiba-king-street-s-buyback-proposals-lack-required-detail" target="_blank" data-smartkarma-citation="insights:24727">Toshiba: King Street's Buyback Proposals Lack Required Detail</a> (5 Oct 2018)     <a href="https://www.smartkarma.com/insights/toshiba-s-buyback-how-it-might-work" target="_blank" data-smartkarma-citation="insights:25748">Toshiba's Buyback - How It Might Work</a> (9 Nov 2018)     <a href="https://www.smartkarma.com/insights/toshiba-s-tostnet-3-buyback-unwinding-another-game-of" target="_blank" data-smartkarma-citation="insights:25863">Toshiba's ToSTNeT-3 Buyback: Unwinding? Another Game of 🐓?</a> (12 Nov 2018)     <a href="https://www.smartkarma.com/insights/toshiba-tostnet-3-round-2-579bn-to-go" target="_blank" data-smartkarma-citation="insights:25945">Toshiba ToSTNeT-3: Round 2 (¥579bn To Go)</a> (14 Nov 2018)     <a href="https://www.smartkarma.com/insights/toshiba-tostnet-3-buyback-means-1-3-done-off-to-buy-in-the-market-now" target="_blank" data-smartkarma-citation="insights:26126">Toshiba ToSTNeT-3 Buyback Means 1/3 Done. Off To Buy In The Market Now!</a> (21 Nov 2018)     <a href="https://www.smartkarma.com/insights/toshiba-buyback-update-not-banging-down-doors-to-get-stock-yet" target="_blank" data-smartkarma-citation="insights:26434">Toshiba Buyback Update - Not Banging Down Doors To Get Stock Yet</a> (3 Dec 2018)

In November 2017, Toshiba Corp (6502 JP) bowed to the inevitable and issued shares in order to shore up shareholder equity ahead of the 31 March 2018 deadline where if the company had not announced a positive shareholder equity number, it would have been delisted according to the Enforcement Rules of the Tokyo Stock Exchange. So it issued ¥600 billion of equity in an accelerated privately-negotiated placement to hedge funds. There was some jawboning later from domestic institutions who had not gotten the show on the deal, but they would do well to remember that when Toshiba was in dire straits earlier that year, and continued listing was not guaranteed because of accounting issues which were later overcome (before the equity issuance), it was the hedge funds who bought dozens of percent of the company - not domestic financial institutions. In any case, the equity was predictably needed, but as a way of making it clear that it would not be forever, the release accompanying the financing said the company would accelerate returns to shareholders once the sale of Toshiba Memory Corporation was complete. That return of capital to shareholders was announced in June 2018 after the closing of the TMC transaction had been confirmed. Toshiba would buy back ¥700 billion of shares. At the time, that was up to 40% of shares outstanding, but the shares rose as the shares of companies with large buyback plans do, and it took until November to dot the "i"s and cross the "t"s on making sure that the cash in the bank account was deemed distributable capital surplus. On November 8th, a year after announcing the sale of equity, Toshiba announced the start of a Very Large Buyback. A few days later the company announced a large ToSTNeT-3 buyback, offering to buy back all  ¥700 billion of shares the following morning at that day's close. A week later the company had bought back ¥243 billion or more than 35% of the total buyback then announced further purchases would be made in the market. That's when the fun began. For previous recent treatment on the Toshiba buyback, see the following:    Toshiba: King Street's Buyback Proposals Lack Required Detail (5 Oct 2018)     Toshiba's Buyback - How It Might Work (9 Nov 2018)     Toshiba's ToSTNeT-3 Buyback: Unwinding? Another Game of 🐓? (12 Nov 2018)     Toshiba ToSTNeT-3: Round 2 (¥579bn To Go) (14 Nov 2018)     Toshiba ToSTNeT-3 Buyback Means 1/3 Done. Off To Buy In The Market Now! (21 Nov 2018)     Toshiba Buyback Update - Not Banging Down Doors To Get Stock Yet (3 Dec 2018)

Toshiba Buyback: Proceeding Apace, But That's Slow

United States

Apple Inc. designs, manufactures, and markets smartphones, personal computers, tablets, wearables and accessories, and sells a variety of related accessories. The Company also offers payment, digital content, cloud and advertising services. Apple Inc.'s customers are primarily in consumer, small & mid-sized business, education, enterprise and government markets worldwide.

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Apple (AAPL US)

AAPL’s Detrimental IPhone Discounts; China Wholesaler Interview

Over the weekend, Apple Inc (AAPL US) iPhone prices continued to bleed after large cuts started last week as distributors rush to destock. This...

JL Warren Capital

Apple (AAPL): Reduces Prices in Mainland China - Right Action, But Not Enough

Tim Cook passed the buck to the weak sales in China. However, we believe China’s retailing is running well based on our visits to shopping malls...

Ming Lu

AAC Tech (2018): Damage Is Done While Business Remain Intact - BUY

The recent trade talk meeting between the US and Chinese government went into an extended unplanned third day which could be seen as a positive...

Henry Soediarko

Japan: Moving Average Outliers - New Year Rally

MARKET COMPOSITE NEW YEAR RALLY - From the December 25th's lows of 8% by number and 11% by value, the percentages of Japanese stocks above the...

Campbell Gunn

Toshiba Buyback: Proceeding Apace, But That's Slow

In November 2017, Toshiba Corp (6502 JP) bowed to the inevitable and issued shares in order to shore up shareholder equity ahead of the 31 March...

Travis Lundy

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